US Equities and Futures rise as Bond Selloff subsides

Stocks rose Wednesday and a selloff in sovereign bonds paused, bringing some relief for markets from the concerns about tightening monetary policy that have affected assets negatively this year. An Asia-Pacific share gauge jumped more than 1% to its highest in about two weeks, helped by Japan and a rally in a Hong Kong technology index. China’s stocks climbed in the wake of intervention by state-backed funds and European equity futures advanced after the S&P 500 closed near session highs. Dip-buying lifted the Nasdaq 100 and a U.S. small-cap gauge outperformed. The 10-year U.S. Treasury yield retreated from levels last seen in 2019. But bond markets remain wary as the Federal Reserve gears up to raise interest rates to quell inflation. A dollar gauge slipped. Meanwhile, the Bank of Japan chose not to deviate from its planned bond purchases, holding fire even as yields continued to rise. Investors are weighing up still-robust corporate earnings against worries about a rapid withdrawal of pandemic-era stimulus. Data this week is expected to show U.S. inflation continues to overheat, potentially stoking bets on a more aggressive Fed liftoff in March.

Oil extended reductions as investors turned their focus to Iran’s nuclear accord and the potential resumption of official crude flows from the OPEC producer. Futures in New York fell below $89 a barrel after losing 3.2% over the past two sessions. A gust of diplomacy preceding the resumption of nuclear talks in Vienna suggested sides are trying to close in on a long-sought deal. Oil’s sizzling rally has paused this week after a run of seven weekly gains propelled prices to the highest since 2014. The rise has been supported by stronger-than-expected demand and supply outages, with geopolitical tensions particularly Russia-Ukraine faceoff adding a risk premium to prices. Crude is eyeing $100 a barrel and Indian oil refiners are ramping up purchases to meet annual production goals may provide an extra boost. The rise in energy prices, however, poses a challenge for consuming nations and central banks as they try to stave off inflation while supporting economic growth. While sentiment in the market is still largely constructive, there are several developments which could lead to further downward pressure. A reduction in the intensity of the Russia-Ukraine standoff or progress in Iran nuclear talks could lead to weaker prices.

Thailand’s central bank held off raising its benchmark interest rate to support a growing economic recovery, even as it sees rising risks from inflation that has breached its target range. The Bank of Thailand’s rate-setting committee decided unanimously Wednesday to hold the key rate at a record-low 0.5% for a 14th straight meeting. Economies globally are seeking to navigate a recovery path between deadly virus variants and inflation pressures, while Southeast Asia faces a particular risk to capital flows as the U.S. Federal Reserve prepares to raise interest rates. Indonesia, which decides policy Thursday, has turned hawkish, while Singapore has tightened policy twice since October. The Thai bank is likely to remain somewhat cautious about the economic outlook in the wake of rising Covid cases. However, its job will have become more complex with inflation rising and major central banks becoming more hawkish, pressure to shift policy will increase in the months ahead.

International Monetary Fund (IMF) says the Nigerian economy is recovering from a historic downturn benefitting from government policy support, rising oil prices and international financial assistance. The IMF disclosed this in a statement issued from its headquarters in Washington D.C. on Monday. The organization said Nigeria exited the recession in fourth quarter 2020 and output rose by 4. 1% (year-on-year) in the third quarter, with broad based growth except for the oil sector, which is facing security and technical challenges. Growth is projected at 3% for 2021. Headline inflation rose sharply during the pandemic reaching a peak of 18.2% year-on-year in March 2021 but has since declined to 15.6% in December, helped by the new harvest season and opening of land borders. Reported unemployment rates (end 2020) are yet to come down but more recent COVID-19 monthly surveys show employment back at its pre-pandemic level. Despite the recovery in oil prices, the general government fiscal deficit is projected to widen in 2021 to 5.9% of Gross Domestic Product (GDP), reflecting implicit fuel subsidies and higher security spending, according to IMF. Moreover, it stated that the consolidated government revenue-to-GDP ratio at 7.5% remained among the lowest in the world.

The Russian market is reaping the benefits of the meeting of the two presidents yesterday. USDRUB breaks through the 75th level, Sber (SBER.ME) closed +4% in yesterday’s trading, Gazprom (GZPR.ME) +3, prices for the debt increased slightly. This week the focus will be on the CBR meeting, the market is planning to increase the rate by 100 bps this Friday to 9.5% from 8.5%.